While most home loan customers know the income tax benefits available on their loans, many buyers are unsure whether similar benefits are available if the loan is taken for the second time. The answer is yes. While buying a home has traditionally been regarded as a good investment, tax benefits on home loans were previously limited to only one loan.
Individuals can now claim tax savings on two home loans. Before the fiscal year 2019-20, an individual who owned two properties could claim income tax deductions for the owner-occupied house. The individual was required to pay taxes on the second house or property based on notional rent, which is the amount received as rent from the property.
What Exactly Is the Tax benefit on a second home loan?
From FY 19-20 onwards, the government has provided a considerable relief u/s 23 and 24 of the Income Tax Act, 1961, by enabling taxpayers to report the value of their ‘Two’ properties as self-occupied on a NIL basis in their tax return. That means a person can now enjoy the benefit of “NO TAX” on his two owned residential properties.
Tax Benefits Available on Second Home Loan
To know how to gain tax breaks on a second home loan, you should be aware of the deductions allowed under Section 80C of the Income Tax Act. This clause allows for a deduction of up to INR 1.5 lakh for principal repayment. It should be noted that the income tax benefit on a second house loan will only be available up to this amount.
Such tax advantages apply to investments like ELSS, PPF, etc. Aside from Section 80C tax benefits, the following extra tax deductions are available on second home loans. If you own two self-occupied dwellings, one of them will be classified as DLOP, or ‘Deemed Let-out Property.’ Even though the rental income you earn will be taxed, you can still benefit from tax breaks.
he owner of that ‘let-out property’ can claim a tax rebate of 30% for maintenance and general upkeep. Income tax benefits on second home loan interest payments are available under Section 24 of the IT Act. In that situation, taxpayers will be entitled to claim a deduction of up to INR 2 lakh.
However, keep in mind that the interest payment deduction for both properties is limited to INR 2 lakh. You can use a home loan tax benefit calculator to calculate the benefits.
Tax Advantages for Self-Occupied Properties
The annual value of a self-occupied property is zero. As a result, there is no standard deduction for a self-occupied home.
The deduction for house loan interest repayment is possible up to 2 lakhs if the following conditions are met.
- The borrower must have taken out the loan after April 1, 1999.
- The borrower must show the lending institution’s interest certificate.
If these conditions are unmet, the maximum deduction allowable under Section 24 is limited to 30,000.
The home loan tax benefit calculator should be used to obtain the maximum tax benefit before filing the tax return.
Tax Advantages for Houses Under Construction
It is important to note that an individual cannot claim a benefit under Section 24 for a completed house. If the development is not completed in a given year, there is no benefit available for that year. However, the individual can receive the interest advantage when the construction is completed.
This interest deduction is allowed in five equal instalments beginning with the year the construction is finished. For example, if the property was completed on July 31, 2018, the individual can claim one-fifth of the interest paid through March 2018 when filing returns for the fiscal year 2018-19. Likewise, they can continue for the next four years.
Conclusion
There might be various reasons to acquire a second house, including maintaining a dwelling in your hometown, purchasing a vacation home, or creating a second income stream by renting out your property. Now that tax breaks are available, you may want to consider taking out a home loan to establish another nest for your family. However, you must know all the conditions to use these benefits at the minimum home loan interest rate.
Resource: https://lottorstar.com/tax-benefits-that-you-can-avail-on-a-second-home-loan/